Will the EPA’s New Carbon Rules Shut Down the Coal Industry?

Some coal companies believe the White House is waging a “war on coal,” through policy and regulation.

Coal companies across the country are living in fear that the Environmental Protection Agency’s (EPA’s) proposed rule to reduce carbon emissions from coal-fired plants will require costly retrofits that would ultimately force them out of business.

Companies also fear the proposed standards could delay the introduction of innovative clean coal technology called integrated gasification combined cycle, or IGCC, also a pricey technology, but one that strips carbon dioxide out of burning coal and then concentrates it, allowing it to be captured and dispatched to an underground storage location.

According to the EPA, carbon capture and storage (CCS) technology, which captures up to 90 percent of the toxic emissions, is the only means by which a 40 percent reduction in carbon emissions can be achieved. And under the new rule, IGCC systems would also be required to use carbon capture.

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• Saving Coal Country

Although the proposed rule applies to both gas- and coal-fired plants, some coal companies believe the White House is waging a “war on coal,” through policy and regulation.

Purchasing, constructing, and operating IGCC systems with CCS come with a significant price tag. To add insult to injury, even the best coal technology can’t compete with the efficiency and low cost of gas-fired power plants. Over the past 20 years, the high cost of compliance for coal companies has resulted in workers losing their jobs and consumers absorbing additional costs.

The gas cleanup portion of the Kemper County Energy Facility in Mississippi in February 2015. Courtesy of Mississippi Power

And even though some companies are now getting help through funding from Department of Energy (DOE) programs and subsidies from the Obama administration, it’s not enough to eliminate the additional cost to consumers, or the loss of jobs. With so few new facilities having been built in recent years, construction costs are still high.

In an effort to delay or block the EPA, big coal companies have filed lawsuits alleging the agency does not have the authority to change emissions standards. But federal courts viewed the challenges as premature, which put the EPA back on track to finalize the new carbon emissions standards by mid-summer.

While coal companies are preparing another round of court cases, not every expert or energy company believes the new EPA standards will put the coal industry out of business.

The Search for a Solution

Scientists and coal companies have been wrangling for over 20 years with the federal government and utility companies over the development of carbon capture and storage technology for coal-fired power plants—in hopes of avoiding any new federal carbon emissions legislation.

The federal government and utility companies initially agreed with how scientists proposed to address global warming.

But the billions of dollars of required construction costs and uncertainty over the industry’s plan to store carbon in the ground derailed approved projects midstream. The federal government pulled out and investors were reluctant to support new construction.

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• Green Energy Jobs Aren’t in Coal Locations

Public utility commissions—state level boards that regulate power—were in a quandary over whether the benefits of reduced carbon emissions outweighed the costs the public would have to bear. In addition, there was still no way to know what exactly the future carbon emissions rules would require.

Many utilities are in denial about carbon management.

— David Hadley, member, Indiana Utility Regulatory Commission

In a 2004 speech, David Hadley, then a member of the Indiana Utility Regulatory Commission, warned that utilities who opted to forego the new technology were exposing themselves to great risk: “Many utilities are in denial about carbon management. I believe any plant built today will need to manage carbon sooner rather than later.”

EPA Rule

In January 2014, the EPA responded to millions of public complaints and revised its proposed standards for carbon emissions that were initially announced in April 2012. The change adds additional standards for utility boiler systems and IGCC systems that partially use CCS.

The problem for coal companies is the EPA's assumptions that they will either convert to carbon capture or do away with coal power in favor of natural gas.

Previously, the rule was based on natural gas combined cycle technology, which operates at a different level of achievement than coal technology.

In making the change, the EPA relied on U.S. Energy Information Administration (EIA) modeling and projected that conventional coal systems would not be built anymore. It anticipated that new technologies, which meet the standards, would be preferred, particularly CCS and natural gas technology.

The problem for coal companies is the EPA’s assumptions that they will either convert to CCS or do away with coal power in favor of natural gas.

One coal energy company CEO fears the federal government is involved in a “total and dangerous takeover” that threatens the lives of employees and their families. Robert Murray, CEO of the largest underground coal mining company—Ohio-based Murray Energy Corporation—led a lawsuit joined by supporting energy trade associations and coal-producing states in a failed attempt to block the proposed EPA rules from being finalized.

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• The Costliest EPA Rule Yet

Just prior to filing the suit, Murray accused the White House of waging a war against his business and announced that he was laying-off more than 1,800 miners in three states.

Murray’s company operates 13 active mines at 11 mining complexes, and transports about 65 million tons of coal to power plants each year, according to the Murray Energy Corporation website. “Murray Energy has approximately three billion tons of coal reserves.”

Murray’s fear is justified in the short-term because the cost of clean coal technology has not dropped since 2010. So new plants that are capable of meeting EPA rules are not being built, and even if they were, people are choosing natural gas, the more efficient and cheaper fossil fuel.

Cost of Clean Coal

We have the technology. The cutting edge IGCC technology can produce an almost pure carbon stream through a gasification process to make capture straightforward, according to Carlos Fernández Alvarez, senior coal analyst at the IEA Gas, Coal, and Power Markets Division.

Carlos Fernandéz Alvarez, senior coal analyst at the IEA Gas, Coal and Power Markets Division. Courtesy of IEA

But Alvarez notes that this system cannot capture carbon by itself. It needs the CCS for capture in order to meet the EPA standards.

The IGCC itself is a more complex system than other clean coal technologies and it’s less efficient than natural gas technology. “The IGCC process has higher auxiliary energy consumption than combined-cycle gas turbine (CCGT) facilities, the most efficient gas-fired power plants, and therefore, IGCC is less efficient,” he said.

In 2010, states, investors, and public service commissions argued over whether the potential benefits of the new systems (jobs and emissions cuts) outweighed the few billion dollars of cost to do the retrofitting, according to a New York Times report.

Investors had been reluctant to fully fund the projects because the success of IGCC had not been proven at scale. They wanted the public to bear some of the costs through higher utility bills.

The problem is still cost and efficiency today. “With few IGCCs built and not many under construction, costs have not yet dropped,” Alvarez said.

And because coal is the most carbon intensive fossil fuel, U.S. energy policies are guiding the country away from reliance on fossil fuels and toward a sustainable energy system with greater energy independence.

The US is estimated to have 480 billion tons of coal in demonstrated reserves.

Despite these changes, experts say coal will still ultimately be the fuel of choice in the future.

Future of Coal

The United States is estimated to have 480 billion tons of coal in demonstrated reserves. The EIA states that coal reserves in the United States are larger than the remaining natural gas and oil resources.

And despite a recent Short-Term Energy Outlook Report published by the EIA indicating that all coal-producing regions were estimated to decline in 2015 due to a decrease in demand, coal will still be an available power resource long after gas and oil have run out.

While coal companies in the United States are anxious over the potential effect the EPA’s carbon emissions standards will have on the coal industry, energy consulting firm Wood Mackenzie said at the 2013 World Energy Congress that global policies to reduce carbon emissions will not eliminate coal as a fossil fuel of choice.

Wood Mackenzie estimated that coal would surpass oil as the global fuel of choice by 2020.

Wood Mackenzie estimated that coal would surpass oil as the global fuel of choice by 2020 largely due to the strong power needs of China and India. It also expects that the United States, Europe, and Asia will contribute to the coal demand.

Wood Mackenzie’s president of global markets, William Durbin, said, “Coal will be used to fuel the growth because, unlike alternatives, it is plentiful and affordable.”

One of the more abundant types of coal in the United States is low quality, high moisture lignite. North Dakota has the largest lignite reserve in the world—with an over 800-year supply, according to the Lignite Energy Council website.

But the state of Mississippi also has a rich supply of lignite and a “recognized need for additional energy resources to supply current and future electricity needs for Mississippi Power customers,” said Jeff Shepard, Mississippi Power spokesman.

The energy company, a subsidiary of Southern Company, plans to launch an innovative technology used solely with lignite.

Kemper County Energy Facility

Southern Company and its subsidiary Mississippi Power have built the first lignite clean coal plant in the United States—Kemper County Energy Facility, which is expected to partially launch in 2016.

In Wilsonville, Alabama, scientists from the DOE, Kellogg Brown & Root, and Southern Company developed and tested the technology—called TRIG (Transport Integrated Gasification)—over the past 20 years at the National Carbon Capture Center.

An aerial view of the Kemper County Energy Facility in Mississippi in February 2015. Courtesy of Mississippi Power

The plant, in Meridian, Mississippi, is designed to take lignite coal and transform it into a clean synthetic gas from which carbon dioxide will be captured, said Shepard in an email.

“After lignite is gasified, it will enter the gas cleanup portion of the plant. There, hydrogen sulfide, ammonia, and carbon dioxide will be removed from the gas stream by solvents. The cleaned up gas will then be burned in the turbine to produce electricity,” said Shepard.

Located right next to a lignite mine, the Kemper project’s TRIG technology is distinguishable from other technologies because it can be fed with air rather than pure oxygen.

In addition, Shepard said: “TRIG also runs cooler than other gasification technologies, which result in slagging, or turning the ash into a molten substance, which must be cleaned from competing gasifiers. Therefore TRIG is simpler and requires less maintenance.”

But Alvarez cautions that although TRIG is “promising,” it needs more experience in order to compare it with other clean coal technologies that are more developed. He adds that lignite technology is not yet able to convert coal easier or cheaper than those technologies that convert the higher quality, less abundant black bituminous coal.

However, unlike other technologies, which store captured carbon under ground in geological formations, TRIG will not require the storing of carbon, which avoids the uncertainty over potential contamination to groundwater.

“It will be transported along a 61-mile pipeline to a pair of oil companies that will use the carbon dioxide for enhanced oil recovery to find oil that was previously unreachable,” said Shepard.